2012年2月14日 星期二

Greece Sinks Further Into Recession

ATHENS—Greece was plunging deeper into recession at the close of last year, showing the devastation of the country's economy even before new austerity plans are implemented in the months ahead.

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An elderly woman begs outside the Bank of Greece headquarters in Athens on Tuesday.

Greece's gross domestic product contracted by an annual rate of 7% when adjusted for inflation, according to preliminary data reported by the Greek government statistics office Tuesday. The dire number was far worse than forecasts of a decline of up to 5%, and showed an accelerating contraction from the 5% year-to-year fall clocked in third quarter.

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The deepening of Greece's economic decline, now in its fifth year, came after an earlier rash of harsh austerity measures was imposed last September. Contributing to the malaise has been deteriorating consumer confidence as double-digit unemployment creeps higher and doubts grow over the country's future and its membership in the euro zone.

"We were expecting the recession to get worse but not at this pace," said Nikos Magginas, senior economist at National Bank of Greece.

Greece's sinking economy has overshadowed its talks with its European partners, who are demanding still more fiscal tightening as a condition for a new bailout agreement. Finance ministers from the 17 countries sharing the euro are scheduled to meet in Brussels on Wednesday to review Greece's proposals to fill 2012 budget gaps.

Last September's government austerity crackdown included higher excise taxes, in addition to new taxes on property and incomes. A political crisis in early November that collapsed the country's previous government contributed to consumer confidence falling to record lows.

The latest economic figures mean that the downturn last year was far worse than the government's forecast for a 5.5% decline in 2011, with economists now forecasting a contraction of around 6.7% to 6.8% for last year.

If those forecasts are borne out when revised GDP figures are released early next month, Greece's recent upward revision in its 2011 budget-deficit forecast might prove to have been overly optimistic.

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Meanwhile, Portugal's economy contracted slightly less than expected last year, but a sharp fall in activity in the fourth quarter signaled austerity measures are increasingly hitting the country.

Gross domestic product shrank 2.7% in the fourth quarter on an annual basis, and 1.3% from the third quarter, according to a flash estimate from the National Statistics Institute. For the year, the contraction was 1.5%, slightly better than the 1.6% estimated by the government and swinging from a 1.4% expansion in 2010. For 2012, the government expects a 3% contraction.

Economists say Portugal's true test will take place this year, when it must cut its budget deficit to 4.5% of GDP from 9.8% in 2010, while implementing measures that include a big cut in public wages.

This week Greek businesses and households learned that they now face even heavier doses of economic hardship. Greece's parliament late Sunday approved fresh austerity policies to win approval of a €130 billion ($171.43 billion) bailout from euro-zone governments and the International Monetary Fund. The aid package, Greece's second bailout in two years, aims to avert a potentially catastrophic debt default next month.

Greece's creditors argue that country must work to reduce its debts to more sustainable levels by closing budget deficits with new budget cuts and higher tax intake.

The coming round of cutbacks is seen hitting the economy hard, at least in the short term, because the measures will weigh heavily on private consumption, which accounts for about 70% of Greece's annual economic output.

Under the agreement, Greece will slash the minimum wage in the private sector by 22%, abolish 15,000 public-sector jobs this year and undertake more than €3 billion in fresh spending cuts, among other measures.

Vasiliki Gerani, a 27-year-old employee at an insurance company, said she is being forced to swallow the cuts in her wages, fearing that otherwise she will join Greece's growing army of jobless workers.

"I keep cutting down my expenses but still the situation is really bad. Of course I have to accept the new measures in order not to lose my job and should be happy with that since there so many unemployed people, especially at my age," she said.

Greek retailers said Tuesday they would step up a campaign opposing the latest government austerity measures and will participate in protest actions in the days and weeks ahead. The National Confederation of Greek Trade said many retailers will be forced to stop paying taxes.

"We decided to take advantage of the time period we have before the exhausting fiscal measures' implementation and propose the implementation of equivalent performance measures instead of recessional measures," said the confederation in a statement.

The trade group said in an earlier estimate that 60,000 of its members were forced to shut down during the last two years. Another 60,000 are expected to close in 2012 because of the economic situation, it said.

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With nearly one in two of those aged between 15 and 24 without a job in November, Greece's unemployment rate soared to 20.9% compared with an 18.2% rate just a month earlier. More than one million Greeks are now without jobs.

Labor-market conditions have been made worse by rising business bankruptcies with more than 200,000 enterprises expected to shut down by the end of this year, according to the Athens Chamber of Commerce.

The deeper-than-expected recession is also seen further harming Greece's ability to collect revenue, opening up a wider-than-targeted hole in the budget deficit last year.

As it is, Greece has already acknowledged a €2.5 billion shortfall in its 2011 budget deficit and hopes to close the year with a fiscal gap of 9% of GDP, or about €19.68 billion.

But in the past few weeks, government officials have indicated the shortfall could now come to around 9.2% of economic output—in part because of Greece's fast-deteriorating economy.

—Patricia Kowsmann contributed to this article.

Write to Stelios Bouras at stelios.bouras@dowjones.com and Nektaria Stamouli at nektaria.stamouli@dowjones.comOnline.wsj.com